You have to pay taxes on your house, your car, and your shoes, so why not your marijuana, cocaine, and moonshine? That's the thinking of some Tennessee legislators who passed a bill in May that will require drug dealers to report to the state revenue office and purchase tax stamps to affix to their products.
The "drug tax bill," which is awaiting Governor Phil Bredesen's signature, imposes a tax on controlled substances either by weight (as with marijuana, cocaine, crystal meth, and other weighable drugs), by dose (as with LSD and pills), or by the gallon (for illicit alcoholic beverages). Beginning January 1, dealers must report to the revenue service to pay the tax within 48 hours of purchasing a certain quantity of drugs. According to the bill, dealers are promised confidentiality when buying the stamps. They're not required to give their name or any personal information.
Dealers who don't pay will face tax penalties if they're caught in possession of drugs without stamps. Tax-evasion charges will be filed in addition to drug charges, creating a stiffer financial penalty for dealers.
"Most of the money will go back to local law enforcement. It'll better enable them to fight the drug problem," said Rep. Charles Curtiss (D-Sparta), who brought the bill before the House.
Seventy-five percent of the funds collected from tax penalties are earmarked for whichever local law-enforcement agency made the arrest. The rest goes into a state general fund. The state commissioner of revenue will be responsible for collecting the tax and doling out stamps, but the Enforcement Division of the Tennessee Department of Revenue will oversee the tax schedule. Al Laney, the division's director, says he still has more questions than answers as to how the system will work.
At least 24 other states have passed similar legislation. Tennessee's bill was patterned after a North Carolina law. According to Ronald Starling, director of the Unauthorized Substances Tax Division at the North Carolina Department of Revenue, only 77 people have purchased tax stamps since the law was enacted in 1990, and he believes many of those were stamp collectors.
Yet the state has managed to collect $79 million in taxes for unauthorized substances. That's because North Carolina revenue collectors work hand-in-hand with law-enforcement officers. When police go on a raid, the tax officials are invited to come along. A tax is assessed onsite and issued to the dealer, and if they can't pay, their assets are seized.
"We prefer cash, but we'll take someone's assets if they don't pay us right away," said Starling. "We take cars, motorcycles, jewelry, and electronics, and they're sold at auction by our state surplus property agency."
But taxing something that's not legal is a sticky issue, one that's gotten serious criticism from appeals courts across the country. In 1995, an Arizona court actually ruled that pot dealer Peter Wilson could go free because not only had he been paying his taxes, he'd also purchased a Cannabis & Controlled Substances Dealer's License. In Arizona, the law also included a provision about purchasing a license, which legislators had originally hoped would be an additional way to bring dealers down. However, a judge ruled that those in compliance with the license and tax provisions had to be set free because punishing them was a violation of the constitutional prohibition against double jeopardy.
"This is the kind of stuff that falls right off the cliff of logic," said Allen St. Pierre, executive director for the National Organization for the Reform of Marijuana Laws. "If you can't legally possess it, how can the state claim to tax it? When these cases are bumped to appeals courts, they generally fall."
In 1996, a dealer in Texas challenged a similar law in the state Court of Criminal Appeals. Mark Stennett of Houston was assessed $49,070 in unpaid taxes for 50 pounds of marijuana. His attorneys argued that both fining and taxing Stennett constituted two punishments for the same crime. The Texas courts originally denied the case, but the U.S. Supreme Court ordered them to reconsider. It was eventually determined that the state cannot impose both drug laws and drug taxes -- only one or the other.
"In the end, it's just bad public policy," said St. Pierre. "It doesn't enhance safety and there will be no diminution of drug use in Tennessee or of it's trafficking up and down I-40. The law will probably end up being held unconstitutional because it just doesn't make sense." n